GSIS vs. Court of Appeals

Foreign currency deposits in the Philippines are governed exclusively by Republic Act No. 6426, a special law whose sole exception to the rule of absolute confidentiality is the written permission of the depositor; the exceptions under Republic Act No. 1405, including when the money deposited is the subject matter of litigation, do not apply to foreign currency deposits. The principle of generalia specialibus non derogant controls, as a general law does not nullify a specific or special law.

GSIS, as administrator of the General Insurance Fund, issued Surety Bond No. 027461 on December 13, 1996, binding itself jointly and severally with Domsat Holdings, Inc. to the Banks in the sum of US$11 Million, securing the repayment of principal and interest on a loan extended by the Banks to Domsat for financing a two-year lease of a Russian satellite from Intersputnik. The Banks included Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the Philippines, and Westmont Bank (now United Overseas Bank). When Domsat defaulted, GSIS refused to honor its surety obligation, alleging that Domsat, with Westmont Bank as conduit, diverted the loan proceeds rather than using them for the satellite lease. The Banks then filed Civil Case No. 99-1853 for collection of sum of money against Domsat and GSIS before the RTC of Makati.

On December 12, 1996, Domsat Holdings, Inc. entered into a loan agreement with several banks — Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the Philippines, and Westmont Bank — whereby the Banks agreed to lend US$11 Million to Domsat for the purpose of financing a two-year lease of a Gorizon Satellite from the International Organization of Space Communications (Intersputnik). The following day, December 13, 1996, GSIS issued Surety Bond No. 027461 under its General Insurance Fund, binding itself jointly and severally with Domsat to the Banks in the sum of US$11 Million, guaranteeing repayment of the principal and interest on the loan. The bond was to remain valid and effective until the loan, including interest, was fully paid and liquidated.

When Domsat failed to pay the loan, GSIS refused to comply with its surety obligation. GSIS alleged that Domsat did not use the loan proceeds for the payment of rental for the satellite. According to GSIS, Domsat, with Westmont Bank as conduit, transferred the US$11 Million loan proceeds from the Industrial Bank of Korea to the Citibank New York account of Westmont Bank and from there to the Binondo Branch of Westmont Bank. The Banks thereupon filed a complaint before the RTC of Makati against Domsat and GSIS for collection of sum of money with damages, docketed as Civil Case No. 99-1853.

In the course of the hearing, GSIS requested the issuance of a subpoena duces tecum to the custodian of records of Westmont Bank to produce four categories of documents: (1) the ledger covering Domsat's account with Westmont Bank and all related documents for the period January 1997 to December 2002; (2) all applications for cashier's/manager's checks and bank transfers funded by Domsat's account for the same period; (3) the ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank and all related documents; and (4) all applications for cashier's/manager's checks funded by Philippine Agila Satellite, Inc.'s account. The RTC issued the subpoena duces tecum on November 21, 2002.

The Banks filed a motion to quash on three grounds: the subpoena was unreasonable, oppressive, and did not establish relevance; the request would violate the Law on Secrecy of Bank Deposits; and GSIS failed to advance the reasonable cost of production. Domsat joined the motion through a Manifestation/Comment. On April 9, 2003, the RTC denied the motion to quash, holding that the case fell under the exception in Republic Act No. 1405 for deposits that are the subject matter of litigation, and that quashal would deny GSIS its right to prove its defenses. On June 26, 2003, the RTC denied the Banks' motion for reconsideration. However, on September 1, 2003, the trial court granted the Banks' second motion for reconsideration and quashed the subpoena, invoking the ruling in Intengan vs. Court of Appeals that foreign currency deposits are absolutely confidential and may be examined only with the depositor's written permission. GSIS's motion for reconsideration was denied on December 30, 2003.

GSIS elevated the matter to the Court of Appeals via petition for certiorari, raising three arguments: the trial court gravely abused its discretion in accepting the Banks' second motion for reconsideration despite lack of notice of hearing; the trial court ignored Section 2 of the Foreign Currency Deposit Act (RA 6426); and the deposit was no longer confidential because both Domsat and the Banks had disclosed it during trial. The Court of Appeals, on February 29, 2008, partially granted the petition: it upheld the quashal of the subpoena for production of Domsat's bank ledger but ordered the issuance of a subpoena for production of applications for cashier's/manager's checks, bank transfers, and the Intersputnik contract, finding that these did not involve examination of the account itself. GSIS's motion for reconsideration was denied on June 19, 2009. Only GSIS appealed the portion pertaining to the quashal of the bank ledger subpoena; the other portions of the CA decision became final and executory.

• Applicability of RA 1405: GSIS maintained that Republic Act No. 1405 governs the case because the US$11 Million loan is the subject matter of the litigation, and under Section 2 of RA 1405, disclosure is allowed when the money deposited is the subject matter of the litigation. GSIS asserted that whether it should be held liable as surety is contingent upon whether Domsat utilized the amount to lease a satellite as agreed, making the whereabouts of the US$11 Million the subject matter of the case.
• Prejudice to Pension Fund: GSIS argued that the concerted refusal of Domsat and the Banks to divulge the whereabouts of the US$11 Million would greatly prejudice and burden the GSIS pension fund, a substantial portion of which is earmarked every year to cover the surety bond issued.
• Procedural Defect of Second Motion for Reconsideration: GSIS contended that the trial court should not have accepted the Banks' second motion for reconsideration because it was pro forma and did not conform to the notice requirements of Section 4, Rule 15 of the Rules of Civil Procedure.
• Disclosure During Trial: GSIS asserted that since both Domsat and the Banks had disclosed the US$11 Million deposit during trial, it was no longer secret and confidential, and GSIS's right to inquire into what happened to the deposit could not be suppressed.

• Applicability of RA 6426: The Banks maintained that Republic Act No. 1405 is not the applicable law because Domsat's deposit is a foreign currency deposit covered by Republic Act No. 6426, under which the only exception to non-disclosure is the written permission of the depositor.
• No Written Consent: Domsat denied the allegations of GSIS and reiterated that it did not give a categorical or affirmative written consent or permission to GSIS to examine its bank statements with Westmont Bank.
• Procedural Matters: The Banks characterized GSIS's arguments as a mere rehash of its previous arguments before the Court of Appeals. They justified the issuance of the subpoena as an interlocutory matter that may be reconsidered anytime and argued that the pro forma rule has no application to interlocutory orders.

• Propriety of Remedy: Whether GSIS availed of the proper remedy in filing a petition for certiorari under Rule 65 instead of a petition for review under Rule 45.
• Applicable Law on Bank Secrecy: Whether Republic Act No. 1405 or Republic Act No. 6426 applies to the examination of Domsat's foreign currency deposit with Westmont Bank.
• Written Consent: Whether the disclosure of the deposit during trial constitutes the written permission of the depositor required under RA 6426.
• Acceptance of Second Motion for Reconsideration: Whether the trial court gravely abused its discretion in accepting the Banks' second motion for reconsideration despite its alleged procedural defects.

• Propriety of Remedy: No. A petition for certiorari under Rule 65 is not the proper remedy to assail a final disposition of the Court of Appeals; the correct remedy is a petition for review under Rule 45. Certiorari is not a substitute for a lost appeal and will not prosper where an appeal is available.
• Applicable Law on Bank Secrecy: Republic Act No. 6426 applies. Foreign currency deposits are governed by this special law, whose sole exception to absolute confidentiality is the written permission of the depositor. The exceptions under RA 1405, including the "subject matter of litigation" exception, do not apply to foreign currency deposits under the principle of generalia specialibus non derogant.
• Written Consent: No. The testimony of the incumbent president of Westmont Bank is not the written consent contemplated by Republic Act No. 6426. Absent Domsat's written permission, Westmont Bank cannot be legally compelled to disclose the bank deposits.
• Acceptance of Second Motion for Reconsideration: No grave abuse of discretion. The trial court may, in the exercise of sound discretion, grant a second motion for reconsideration despite being pro forma, and GSIS waived the defect by not objecting to the lack of notice in its opposition.

• Propriety of Remedy: Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy, and adequate remedy in the ordinary course of law. It is not a substitute for a lost appeal. Where an appeal is available, certiorari will not prosper even if the ground is grave abuse of discretion. When a party adopts an improper remedy, the petition may be dismissed outright. The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45, not a special civil action under Rule 65. GSIS thus availed of the wrong remedy.

• Applicable Law on Bank Secrecy: Both RA 1405 and RA 6426 support the confidentiality of bank deposits, but they are not in conflict. RA 1405, enacted in 1955, is a law of general application covering all bank deposits without distinction between domestic and foreign deposits, enacted to encourage people to deposit money in banking institutions and discourage private hoarding. RA 6426, enacted in 1974, is a special law designed specifically for foreign currency deposits, intended to encourage deposits from foreign lenders and investors. Under the principle of generalia specialibus non derogant, a general law does not nullify a specific or special law. RA 1405 provides multiple exceptions to confidentiality, including when the money deposited is the subject matter of the litigation. RA 6426 provides only one exception: disclosure upon the written permission of the depositor. Because Domsat's deposit is a foreign currency deposit, RA 6426 governs exclusively. The ruling in Intengan vs. Court of Appeals affirmed this principle, categorically declaring that for U.S. dollar deposits, the applicable law is RA 6426, not RA 1405. This was reiterated in China Banking Corporation vs. Court of Appeals. Applying Section 8 of RA 6426, absent written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits, otherwise it might expose itself to criminal liability under the same act.

• Written Consent: The Court of Appeals properly addressed this issue by ruling that the testimony of the incumbent president of Westmont Bank does not constitute the written consent contemplated by RA 6426. The statute requires the written permission of the depositor — Domsat — not the bank. Domsat explicitly denied giving any categorical or affirmative written consent. The fact that the existence of the deposit was disclosed during trial does not equate to the written permission required by the statute.

• Acceptance of Second Motion for Reconsideration: The appellate court correctly upheld the trial court's acceptance of the second motion for reconsideration. A judge may, in the exercise of sound discretion, grant a second motion for reconsideration despite its being pro forma, setting aside technicality in favor of substantive justice. Furthermore, GSIS did not assail the defect of lack of notice in its opposition to the second motion for reconsideration, which constitutes a waiver of the defect. The pro forma rule also has no application to interlocutory orders, which may be reconsidered anytime.

• Generalia specialibus non derogant — A general law does not nullify a specific or special law. The Court applied this principle to hold that RA 1405, as a general law on bank deposit secrecy, does not override RA 6426, a special law governing foreign currency deposits. The exceptions under the general law therefore do not apply to foreign currency deposits.

• Secrecy of Foreign Currency Deposits under RA 6426 — All foreign currency deposits authorized under RA 6426 are of an absolutely confidential nature and, except upon the written permission of the depositor, shall in no instance be examined, inquired, or looked into by any person, government official, bureau, or office, whether judicial, administrative, or legislative, or any other entity, whether public or private. The sole exception is the written permission of the depositor. This is more restrictive than RA 1405, which allows additional exceptions including when the money deposited is the subject matter of litigation.

• Certiorari not a substitute for appeal — Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy, and adequate remedy in the ordinary course of law. It is not a substitute for a lost appeal and will not prosper where an appeal is available, even if the ground is grave abuse of discretion. The proper remedy to assail a final disposition of the Court of Appeals is a petition for review under Rule 45.

• Waiver of procedural defects — Failure to timely object to the admission of a defective motion constitutes a waiver of the right to do so. GSIS did not raise the defect of lack of notice of hearing in its opposition to the Banks' second motion for reconsideration, thus waiving the objection.

• "A general law does not nullify a specific or special law. Generalia specialibus non derogant. Therefore, it is beyond cavil that Republic Act No. 6426 applies in this case." — This passage articulates the controlling principle for resolving the conflict between RA 1405 and RA 6426, establishing that the special law on foreign currency deposits prevails over the general bank secrecy law.

• "On the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is disclosure upon the written permission of the depositor." — This formulation defines the single, narrow exception to the confidentiality of foreign currency deposits, distinguishing RA 6426 from RA 1405's broader set of exceptions and establishing the rule that the "subject matter of litigation" exception does not apply to foreign currency deposits.

• "Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act." — This passage applies the statutory rule to the facts, demonstrating that the absence of the depositor's written permission bars compelled disclosure and that banks face criminal liability for unauthorized disclosure.

• "Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy and adequate remedy in the ordinary course of law. That action is not a substitute for a lost appeal in general; it is not allowed when a party to a case fails to appeal a judgment to the proper forum." — This passage states the procedural doctrine governing the availability of certiorari, explaining why GSIS's chosen remedy was improper.

• Intengan vs. Court of Appeals, 427 Phil. 293 (2002) — Controlling precedent followed. The Court affirmed its ruling that for foreign currency deposits such as U.S. dollar deposits, the applicable law is RA 6426, not RA 1405. The RTC invoked this case in granting the second motion for reconsideration and quashing the subpoena, and the Supreme Court relied on it to uphold the CA's ruling.

• China Banking Corporation vs. Court of Appeals, G.R. No. 140687, December 18, 2006, 511 SCRA 110 — Followed. The Court reiterated the exception to non-disclosure of foreign currency deposits, i.e., the written permission of the depositor, and ruled that the owner of funds unlawfully taken has the right to inquire into said deposits. In the present case, the Court cited it to support the proposition that RA 6426 exclusively governs foreign currency deposits.

• Bicol Agro-Industrial Producers Cooperative, Inc. vs. Obias, G.R. No. 172077, October 9, 2009 — Cited for the procedural principle that the proper remedy to assail a final disposition of the Court of Appeals is a petition for review under Rule 45, not certiorari under Rule 65.

• Republic vs. Eugenio, Jr., G.R. No. 174629, February 14, 2008 — Cited for the enumeration of exceptions under RA 1405, including the addition of the AMLA exception allowing AMLC to inquire into bank accounts upon court order.

• Tomawis vs. Balindong, G.R. No. 182434, March 5, 2010 — Cited for the statutory construction principle of generalia specialibus non derogant, sourced from Agpalo's Statutory Construction.

• Section 2, Republic Act No. 1405 (Law on Secrecy of Bank Deposits), as amended — Declares all deposits of whatever nature with banks or banking institutions in the Philippines as absolutely confidential, except upon written permission of the depositor, in cases of impeachment, upon order of a competent court in cases of bribery or dereliction of duty of public officials, when the money deposited is the subject matter of the litigation, and in AMLA cases. The Court held this provision inapplicable to foreign currency deposits because RA 6426, as a special law, prevails over this general law.

• Section 8, Republic Act No. 6426 (Foreign Currency Deposit Act), as amended by PD No. 1035 and PD No. 1246 — Declares all foreign currency deposits as absolutely confidential and provides that, except upon the written permission of the depositor, foreign currency deposits shall in no instance be examined, inquired, or looked into by any person or entity. The Court applied this provision as the controlling law, holding that absent Domsat's written permission, Westmont Bank could not be compelled to disclose the bank ledger.

• Section 10, Republic Act No. 6426 — Penal provision imposing imprisonment of not less than one year nor more than five years, or a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both, for willful violation of the Act. The Court cited this provision to underscore that Westmont Bank would face criminal liability if it disclosed Domsat's deposits without the depositor's written permission.

• Section 4, Rule 15, Rules of Civil Procedure — Governs the hearing of motions, requiring that every written motion be set for hearing and that notice be served to ensure receipt by the other party at least three days before the hearing. GSIS invoked this provision to challenge the Banks' second motion for reconsideration as pro forma for lack of notice of hearing; the Court held the objection was waived.

Renato C. Corona (Chief Justice, Chairperson), Presbitero J. Velasco, Jr., Teresita J. Leonardo-De Castro, and Mariano C. Del Castillo concurred in the decision.